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Giant hospital system’s charity status challenged

University of Pittsburgh Medical Center president and CEO Jeffrey Romoff in his office last February. (Michael Henninger for The Washington Post)

Pennsylvania Attorney General Josh Shapiro (D) accused a major nonprofit hospital system and health insurer of failing to fulfill its charitable mission Thursday, taking a step into a bruising, years-long regional health-care battle that has become emblematic of how broader changes rippling through the health-care system can leave sick people caught in the crossfire of competition between multibillion-dollar nonprofits.

The legal challenge rests on the accusation that the University of Pittsburgh Medical Center (UPMC), which offers health insurance and health care, has not been acting like a true charity, in violation of state law that makes it tax-exempt and helped it avoid $40 million in property taxes last year alone. Shapiro said that practices such as requiring out-of-network patients to pay for care before receiving treatment run counter to its charitable mission.

The legal battle also highlights the ongoing question of whether powerful nonprofit hospital systems that receive benefits as charities, such as millions of dollars in tax breaks and public and private donations, are truly providing community benefits.

Eight years ago, UPMC, a top-ranked teaching hospital, announced plans to shut out patients insured by Highmark Health from its western-Pennsylvania network. This week, Shapiro filed a petition asking the state’s Commonwealth Court to force UPMC to continue to contract with Highmark.

“Pittsburghers have essentially paid to not get care. They pay local, county and state taxes. They pay to subsidize for the taxes that UPMC doesn’t pay. They then pay through their employer for Highmark Health insurance,” Shapiro said at a news conference. “Then, if they want to take their child to a doctor at a UPMC facility, they have to pay extra just to walk into the hospital that their taxes helped build. That’s outrageous, and that’s not fair.”

A consent decree brokered by the state had allowed for a period of transition in which Highmark members would still have access to certain UPMC health-care services — a period that will expire at the end of June. That means people with Highmark or UPMC insurance will exist in completely separate health-care silos, having access to different networks of doctors and hospitals. UPMC spokesman Paul Wood said that the region has a competitive marketplace for health insurance and that consumers have had time to prepare for the end of the UPMC-Highmark relationship.

“Consumers have greatly benefited from the heightened competition,” Wood said.

Jill Horwitz, a professor of law and health policy at the University of California at Los Angeles, said the argument will delve into whether UPMC’s behavior is in line with its legally defined charitable goals.

“The attorney general is the primary government official with the responsibility to protect charitable assets in the state, so absolutely the AG has the standing to pursue an action if he thinks a charity is not applying its assets to the charitable goals required of the organization,” Horwitz said. But she also pointed out that operating as a charity doesn’t mean that an organization’s goal is to provide services free, just as a symphony doesn’t have to provide free tickets and a museum doesn’t have to provide free admission.

Sen. Charles E. Grassley (R-Iowa) has for years been investigating whether nonprofit hospitals are meeting the criteria that make them eligible to be exempt from taxes, an investigation that is continuing and will be an issue he continues to examine in the current Congress, according to Michael Zona, a Grassley spokesman.

Nonprofit doesn’t mean that hospitals don’t make a profit. A 2016 Health Affairs study found that seven of the top 10 most profitable hospitals were nonprofits, with each earning more than $163 million in profits from patient care.

“Nonprofit is a legal term, meaning they have no stockholders,” said Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health. “But in my view, they’re not nonprofits in how they behave, because they’re not providing charity care equivalent to the tax advantages they receive.”

Martin Gaynor, an economist at Pittsburgh’s Carnegie Mellon University and a former Federal Trade Commission official, said “there are legitimate questions about whether UPMC is behaving in the community interest.” But he pointed out that the big changes in the U.S. health-care system over the past few decades raise questions about how these large nonprofits should be expected to behave.

“Originally, of course, hospitals were literally charities,” Gaynor said. " … That’s no longer the case — they’re big businesses. All you have to do is look around you. Health care is almost one-fifth of the entire economy. The hospital sector is 5.6 percent of our national income. It shouldn’t be any surprise if you think about it that way, when health care has become a big business, that the organizations that operate in this sector operate like — guess what — big businesses.”

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